South Florida has seen the residential property inventory trend downward ever since foreclosures were halted in late 2010 with the robo-signer litigation.  The dwindling supply created an artificial support for prices and I have stressed that this support would be temporary in nature.  Most real estate agents in South Florida haven’t stopped screaming “now is the time to buy”, for the last decade and unfortunately the bulk of their clients have paid the price…..literally!

Now is a good time for a reality check.  The artificial “floor” in South Florida housing prices that has been in place is more like a trap door.  Distressed properties have remained on the sidelines for over two years, but will soon rear their ugly head just like did in 2008-2010.  All the robo-signer case did is postpone the inevitable.  I have repeatedly stressed that the “housing recovery” in the media headlines is a complete head fake.  So now for some fun, let’s look at the charts:

After reaching a peak in September of 2010 (one month before foreclosures were halted), the single-family homes for sale in the Greater Fort Lauderdale market has gradually dropped to only 2,878 units in September and saw a slight uptick to 2,955 units available for sale in October 2012.  Next we will look at the average selling price.

Riddle me this:  If we are in a “real estate recovery”, why is the average selling price declining?  The average selling price in the Greater Fort Lauderdale area has dropped by almost 20% from May of 2012 to October 2012.  What we are now witnessing is the increase in short sale transactions being completed after the major banks have been encouraged to complete short sales as part of the robo-signer settlement that was executed in March of 2012.  next up, let’s look at distressed sales as a percentage of available homes for sale and closed transactions.

In October 2012, active REO and short sale properties listed for sale remained at 22% of homes available for sale on the market and they were 17% of all closed transactions (a 1% increase from September).

Where are the properties hiding in South Florida?   They are in real estate purgatory, AKA the shadow inventory.

As of October 4, 2012, there were 34,427 homes in some stage of foreclosure in Broward County, Florida.  I have included a detailed list of cities with the data so that you will be able to see where these properties are hiding.  Let’s crunch the numbers:

• 34,427 single family homes in foreclosure in Broward County as of 10/4/12
• 2,955 single family homes listed and available for sale
• 22% of the 2,955 are “distressed” (REO or short sale)
• That translates to only 650 houses (less than 2%) of the 34,427 are now on the market
• 33,777 houses in Broward County in the “shadow inventory” not currently listed for sale

Some of the houses that are currently in foreclosure may receive a principal reduction or another form of loan modification.  The remaineder will eventually be placed on the market for sale as a short sale or bank owned REO listing.  Just to put things in perspective, this final chart shows the rate at which properties are entering foreclosure in Broward County on a monthly basis:

The number of new foreclosures being filed will not be slowing down anytime soon.  Just in the past few days the Federal Housing Administration (FHA) has discussed their need for a taxpayer bailout because the level of government insured loans defaulting continues remains elevated and they expect plenty more to come.  There is still a lending hangover from the boom years in the real estate market, then add the FHA borrowers who rushed into the market in the past few years with only 3 to 5% down payment that are already underwater on their loans.  If you put 5% down and the market declines 10 to 15% in a few years, you are now underwater like nearly half of all homeowners with a loan in Florida.